your banking relationship · 2018-07-09 · for direct deposit of your paycheck. that way, on...

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YOUR BANKING RELATIONSHIP

Welcome to part 2 of our 8 part series on personal financial management, Your Banking Relationship.

We call our series Investing in Yourself, because we think that with a little information, and some practice, you can become an effective financial manager—with an important client—yourself!

For maximum benefit, I encourage you to actively participate in the exercises, think critically about your saving and spending habits, and tailor these materials to your particular financial situation.

At the end of each lesson, we’ll ask you to evaluate your learning experi-ence so that we can make them even more effective.

In this lesson we will discuss the advantages of using the services of a bank

investing in

Yourself Chapter 2

Your Banking Relationship

Participants Workbook

investing in yourself 2

• Safety of your money

• You can earn interest on deposits

• You can write checks or use a debit card to pay bills from your checking account

• Checks and bank statements provide proof of your payment

• A good banking relationship can qualify you for a loan

• You can directly deposit your pay check and avoid expensive check cashing fees

A solid banking relationship is the cornerstone of good financial manage-ment. Here are a few reasons why you should use the services of a bank.

Safety of your money: Since your money is held by a responsible third party, there is little risk of loss due to theft, carelessness, or mishap.

Some bank accounts, such as savings accounts and certificates of deposit, can earn interest—thereby increasing your wealth.

You can still spend your money if it is in a checking account. You can write checks for your bills, or use a debit card, and the bank will deduct the amounts from your checking account. The checks or debit card statement will provide a record of your spending that you can verify from time to time or use as proof that a bill was paid.

Your deposits in savings accounts and checking accounts are insured against loss by the bank, for up to $100,000 in most cases.

By directly depositing your pay check, you will avoid fees at expensive check cashing institutions and you are less likely to start spending it right away!

Finally, by establishing good relations with your bank, you should be able to approach your bank for a loan when the time comes.

Why Do You Need a Bank?

Your Banking Relationship �

Two Basic Types of Bank Accounts

There are two basic types of bank ac-counts—the savings account and the checking account. Most people should establish both a savings account and a checking account, as they provide both safety and security, while still giving you control over your money.

First, a savings account allows you to deposit money that you do not need to spend immediately. One excellent use of a savings account is to create a cash reserve—a three-month supply of cash that you can use for living expenses in case you become injured or lose your job.

Even if you have already established a cash reserve, you might continue to deposit extra money in a savings account to take advantage of the fact that savings accounts earn interest.

By placing money into a savings ac-count, the bank will pay you interest, which increases the amount in your account. For example, if you were to deposit $1,000 in a savings account earning 4%, that account would gener-ate interest of $40 in one year’s time.

• Savings Account—used for depositing cash for future use, or as a cash reserve

• Checking Account—allows you to write checks or make withdrawals using a debit card

The Savings Account

• Emphasis is on safety of your money

• FDIC-insured up to $100,000

• Can be used to accumulate funds for a large purchase

• Money can be moved to your checking account if desired

• Interest rate is low because the risk is low

The savings account is designed for safety of your deposits. In fact, banks typically insure your deposits for up to $100,000.

A savings account is a great place to accumulate funds for a large pur-chase—like an automobile or house. Your motive in using a savings account is to save, rather than spend, the money in the account. However, if you reach the point where you need to use the money, you can transfer savings to your checking account for easy access to the funds.


the checking account is that the bank will send you a monthly statement, showing deposits, withdrawals, and the current balance.

It is very important to examine the bank statement and verify that the amounts are correctly stated.

Using a checking account is far safer than handling large amounts of cash. Additionally, the check and the bank statement provide evidence that the bill was paid and for what amount. This paper trail is vital in some cases, if you need to prove that you made a timely payment for something. If you presently use a check cashing organiza-tion, you can save those high fees that they charge by having your own check-ing account

A relatively new feature that most banks offer is access to your account over the internet. This access is helpful in determining the amount of money you have at any one time.

You may be dismayed at the seem-ingly low interest rate that banks offer on savings accounts. But, when you consider that your risk of loss is prob-ably non-existent, the interest rate is reasonable.

If you can afford it, consider making a deposit to your savings account each pay period, before you have the chance to spend the money on anything else. Paying yourself first is the most effec-tive way to save.

The bank will give you a pass book to record your deposits and withdrawals from your savings account.

The Checking Account

• Your deposits are held by the bank

• You spend the money by writing checks

• Each month, you receive a detailed statement of deposits, withdrawals, and current balance

• Increases safety of your money

• Provides evidence of payment

• Internet account access available

A second type of account you should have is a checking account. You es-tablish a checking account by making a deposit. The bank will provide you with numbered checks. When you need to pay a bill, you write a check for the exact amount required.

Upon deposit of your check, your bank will pay the holder of the check from your account. An important feature of


• Bank or Credit Union?

• Convenience & Number of Branch Locations

• Present and Future Services Anticipated—Credit Cards, Brokerage Services, etc.

• Affiliation with the Company You Work For

• Bank Fees charged for Account Services

• ATM Services and Locations

• Electronic Bill Paying and Account Access

Selecting a Financial Institution

How should you choose your financial institution? Here are some tips……

If you read the papers or watch TV, you will find that banks may go by names such as “national bank”, “mutual sav-ings bank”, “savings and loan”, etc.

Additionally, there are credit unions that are often affiliated with a type of profession, such as a “teachers’ credit union.” All of these types of financial institutions offer basic banking services such as savings accounts, checking ac-counts, and loans.

Any of them might be suitable choices for your savings or checking accounts. Consider how many branches the com-

pany has, as well as the convenience of their locations to your home or place of work.

You should check with your employer to find out which banks can be used for direct deposit of your paycheck. That way, on payday, your money is already deposited and can be accessed to pay bills. Also, because the money goes directly from your employer to the bank, you will be less likely to spend it.

Additionally, it is advantageous to know what ATM services or computer-ized bill-paying services are offered by a bank.

investing in yourself �

Managing a Checking Account

• Applying for the Checking Account

• Filling Out the Deposit Slip

• Writing Checks or using a Debit Card

• Reconciliation of the Checking Account

At the end of the month, the bank will send you a statement that shows the record of all deposits and withdrawals made against the account. You must go through your checkbook and compare all checks you wrote against the bank statement. This is called “reconciling the account.”

It is essential that you reconcile your account periodically to ascertain that the bank’s record and your record of your account are identical. Addition-ally, you must examine your bank statement to determine if the bank has made additional charges against the account. The bank statement is your official notification of such charges.

After you have chosen your financial institution, let us assume that you ap-ply for a checking account. The bank will ask that you fill out a deposit slip and signature card. Additionally, you will make an opening deposit.

The bank will provide you with a box of checks and some additional deposit slips. When it is time to pay a bill or make a purchase, you can write a check for the exact amount required. At the time you write the check, you must record the amount that the check is written for. Many checkbook styles have a non-carbon backing that will make a duplicate copy of the check as you write it. That way, after the check clears the bank, you have the opportu-nity to verify that the bank cashed the check for the correct amount.


Now we will discuss making a deposit to your checking account. You can fill out the check register that is included as a pull out in the back of this work-book as we go along. You will notice that we have filled out the first deposit and check to help you get started. You will need a calculator so that you can add your deposits and deduct your checks from the check register balance as we go along.

In our example, Anna James makes a deposit to her checking account at Al-len State Bank. A deposit slip is used for this purpose. Anna fills in the date of the deposit on the left.

Anna deposits her paycheck of $980, which she must endorse to the bank. Endorsing a check means signing it on the back in the space provided. Anna should also write her bank account number on the back of the check and it is wise to write the words “For Deposit Only” so that it is clear that this check must be deposited into her account.

Checking Account: Deposit

Anna James221 Maple StreetSeattle, Wa 98111

Date 20

Sign here for Cash Received:

Allen State BankSeattle WA:99992222:012�4��8

Deposit Slip:Checking

CASH

Checks-list singly

Total from other side

TOTAL

Less Cash Rec’d

Total Deposit $

Total Items

100 00

980 00

0

1080 00

20 00

1060 00

June4 05

Anna James2

Additionally, she deposits $100 in cash that she received from her aunt as a birthday gift. Notice that the deposit slip has a specific place for the cash total, and several lines for checks.

In this example, Anna also requests that the bank give her $20 cash from the deposited amount. She must sign for the cash on the left side of the deposit slip.

To summarize, Anna deposited a check for $980 and $100 in cash. She is receiving $20 in cash back. The total amount deposited to Anna’s checking account is $1,0�0.

Anna applies for a VISA debit card, which can be used to make purchases, very much like a check. This is not a credit card and Anna must be sure she has the money available in her check-ing account before she uses it.


She also arranges for direct deposit of her paychecks to this account through her company’s payroll department.

As we work through this chapter you will maintain Anna’s check register. You will see on the check register that we have entered this first deposit of $1,0�0 for you.

Anna receives her new checks from the bank. She places one book of checks in her purse and the rest in a safe place at home.

She writes her first check to buy groceries at Safeway. Here is that first check, number 201. Notice how the check is prepared:

• After the phrase “Pay to the Order of…” Anna writes “Safeway.”

• The date is entered in the space provided. Be sure to include the month, the day and the year.

• The amount of the check is written in the box provided.

• In addition to the amount written in numbers, the entire amount is written out in letters. Anna writes “Thirty five and…�0/100 to indicate $��.�0. Note that the entire line is taken up with Anna’s writing so that extra figures or words cannot be inserted.

• To the left, where it says “FOR” Anna writes “Groceries.”

• On the right at the bottom is a space where Anna signs her name exactly as it appears at the top of the check.

It is very important that Anna also record the payee and amount in her check register for check 201. You will see that we have entered this first check for you in the check register as an example.

Anna’s second check, number 202 is written to Lakewood Garden Apartments for $�00. Examine this check—is it filled out correctly? The date is entered, the payee’s name is in the proper place, the amount is written both in numeric form and in words.


Anna James

201

June5,2005Date

:99992222:012�4��8

Allen State BankSeattle WA

Pay to the order of: $Safeway 35.50

Thirty-fiveand50/100 DOLLARS

for: Groceries

201

Your Banking Relationship 9


Anna James

202

June7,2005Date

:99992222:012�4��8


Pay to the order of: $LakewoodGardenApartments 700.00

Sevenhundredand00/100 DOLLARS

for: JuneRent

Anna has signed the check and addition-ally has noted that it is for June’s rent.

Anna also makes sure that the details of this check are noted on the check stub for check 202, so that she has a record of the expenditure.

Enter this check in the check register before proceeding.

Check 20� is written similarly to the others. In the area in the lower left corner, where it says “For…” Anna writes the account number on her elec-tricity bill. This will help insure that

the power company credits the correct account.

You may also notice at the bottom left corner of each check is a series of numbers separated by a colon. These numbers represent Anna’s bank account number and the bank routing number. They uniquely identify Anna’s account. It is wise to keep those numbers secret, as they could be used by a dishonest person to withdraw funds electronically from Anna’s account.

Again, you should enter the check num-ber and amount in your check register.


Anna James

20�

June9,2005Date

:99992222:012�4��8


Pay to the order of: $SeattlePower&LightCo. 150.00

Onehundredfiftyand00/100 DOLLARS

for: Acct:213-777-40-2

202

20�


Anna’s Automatic Paycheck Deposit

Anna checks her bank account on line to verify that her employer has deposited her mid month pay check. Go ahead and record this direct deposit of $980 in your check register on the 15th of the month.

Anna writes Check 204 as a contribution of $2� to a local high school. Check 20� is to the department store, Nordstroms, for a $140 suit.

Anna uses her VISA debit card to withdraw $20 cash at a local ATM. She saves the ATM receipt which indicates the time and location of the withdrawal, as well as the amount. This ATM receipt must be retained and filed, in order to match it with the bank’s record at the end of the month.

Enter the details of these two checks and the ATM withdrawal in your check register


Anna James

204

June16,2005Date

:99992222:012�4��8


Pay to the order of: $JohnsonHighSchoolFoundation 25.00

Twenty-fiveand00/100 DOLLARS

for: Contribution


Anna James

20�

June20,2005Date

:99992222:012�4��8


Pay to the order of: $Nordstroms 140.00

Onehundredfortyand00/100 DOLLARS

for: Suitforwork

204

20�


At the end of the month, Anna receives her checking account statement, which shows all activity in the account. Let’s look at the deposits. The initial deposit is for $1,0�0 from June 4. There’s a second deposit on June 1�, of $980, which is the direct deposit of Anna’s paycheck.

Now let’s look at the withdrawals. Anna has written five checks, but have all of them cleared the bank account? The answer is no. The sequence of checks has been broken, as noted by the asterisk—indicating that check 204 has not yet cleared the bank. Check 204 is an outstanding check.

You will also notice that there are two other deductions from Anna’s account. She made a $20 withdrawal using her VISA debit card….and the bank has charged her a fee of $�.00 for the use of her checking account.

Using your pen or pencil, check off each of the items that the bank has listed as withdrawals, making sure the amounts on the bank statement match the amounts in your check register.

The bank statement shows a final balance of $989.�0. Is this the cor-rect balance on Anna’s account? The answer is no—Anna must subtract the amount of check 204 from the bank statement balance in order to arrive at the correct balance of $9�4.�0. This is because check 204 is outstanding, but when it arrives, it will bring down the account balance by $2�.00. You will know the amount of check 204 by referring to your check register. This is why it is so important to record the check number and amount in your check register when you write a check!



Beginning Balance Total DepositsTotal WithdrawalsEnding Balance

$ 00.00 2,040.00 1,0�0.�0 989.�0

Statement Period�/01/0� to �/�0/0�

Account Number: 12�4��8

Deposits to Account�/04/200��/1�/200�

$ 1,0�0.00 980.00

Withdrawals from Account�/0�/200��/10/200��/12/200��/20/200��/22/200��/�0/200�

$ ��.�0 �00.00

1�0.0020.00

140.00�.00

check 201check 202check 20�ATM WD �th & Main St.check 20�*service charge

* Indicates break in check number sequence


Balancing your checking account (called “bank reconciliation”) is a procedure that you MUST perform each month, to verify the deposits and withdrawals to your checking account.

The basic procedure is to compare or match your records with the informa-tion in the bank statement. You might start by looking at the deposits you made to the account, including direct deposits by your employer. Then, look at each check you wrote and verify that the amount you wrote the check for matches the amount the bank took from your account. If there are any mismatches on these items, be sure to contact your bank.

Don’t forget to subtract the amounts you withdrew from your account using an ATM machine—and likewise match them to the bank statement. If you have saved your ATM receipts, you should be able to reconcile your ac-count in a few minutes. Here’s a good TIP: when you make an ATM with-drawal, record the amount withdrawn in your check register—that way it will appear with the other withdrawals made by check—and won’t be forgot-ten.

Also, keep in mind that the bank may impose fees for the use of the account, or other charges. These must also be taken into account to arrive at your final balance.

Match your record of activity to the bank statement, including:

• Deposits

• Checks

• ATM withdrawals or other debit transactions

• Bank charges

Reconciling the Bank Account

Your Banking Relationship 1�

A modern convenience of banking is the ability to gain internet access to your bank accounts. Most banks now offer this service, which requires that you to have a login identification code and password. Be sure to put these access codes in a safe place, both in case you forget them, and so that unauthorized individuals cannot access your account.

This ease of access to your account will allow you to monitor your account peri-odically, to determine whether deposits have been made on a timely basis, or if certain checks have cleared the bank. A big advantage of online access is that you don’t really have to wait until the end of the month to verify your account balance—you can reconcile at any time.

• Most bank accounts permit internet access

• This requires login ID and password (keep them secure)

• Can reconcile at any time

• Easy to monitor your account

Logging in to Your Bank Account

As you become more skilled at manag-ing your account online, you may wish to consider other online services, such as paying bills online—which avoids the risk of your checks going through the U.S. mail system.

Online access to your account is a service that your bank probably offers for free, and which you should carefully consider.


Here are some safety precautions that apply to checking accounts. You must reconcile all deposits and withdrawals to your account. It IS possible that you could write a check for $29.00 and that the bank COULD cash it for $290. Mis-takes happen. Also, it is possible that someone could alter the amount of your check, and cash it for more than you wrote it for. If you don’t reconcile periodically, such mistakes might never be caught.

Keep your unused books of checks in a safe secure place—like a locked file cabinet. Unscrupulous individuals have been known to steal checks, write them to merchants, falsifying the signature, and clearing out the account of the rightful owner.

• Reconcile all deposits and withdrawals

• Keep unused checks in a safe place

• Keep bank account and bank routing number secure

• Never write a check for more than you actually have—avoid bouncing checks!

• If you have questions about your account—contact your bank

Checking Account Safety

Never write a check for more than you have in your account. This will lead to a bounced check. Bounced checks damage your reputation, your credit rating, and your morale. You will be charged hefty fees by the bank and the merchant you wrote the check to.

Banks compete for customer loyalty. If something happens with your account that you don’t understand, contact your bank. You can assume that they want you to be an informed customer and will be eager to assist you.

Record Checks, Deposits and ATM With-drawals for July


Date Check # Payee Deposit Amount

�.01.0�

�.0�.0�

�.10.0�

�.14.0�

�.1�.0�

�.19.0�

�.2�.0�

�.28.0�

20�

20�

208

209

210

ATM

Lakewood Garden Apts.ABC Phone CompanyCable TV & Internet

Safeway

Power & Light

Paycheck

Paycheck

$ +980

-�00

-�4

-100

+980

-140

-1��

-20

A few moments ago, we looked at the bank statement for Anna James, which stated that Anna’s balance was $989.�0. However, check 204, written for $2�.00 had not yet cleared. We calculated the correct bank balance to be $989.�0 minus $2�, or $9�4.�0.

In July, Anna wrote five checks, shown here, and also withdrew $20 from an ATM machine. She also checked her account on line and verified that her pay check of $980 had been deposited on the 1st and 1�th of July. Write down the check numbers, amounts, the ATM withdrawal and the deposits of pay shown in this table in your check register.

Next, let’s take a look at the bank statement for July (on the next page) and see if we can reconcile Anna’s ac-count.

investing in yourself 1�



Beginning Balance Total DepositsTotal WithdrawalsEnding Balance

$ 989.�0 1,9�0.00 9�4.00 1,98�.�0



Deposits to Account�/04/200��/1�/200�

$ 980.00 980.00

Withdrawals from Account�/0�/200��/09/200��/1�/200��/22/200��/28/200��/�1/200�

$ 2�.00 �00.00

�4.00140.0020.00�.00

check 204check 20�*check 20�check 209*ATM WD City Center Bldg.service charge

* Indicates break in check number sequence

Compare Anna’s bank statement with the checks she has written and deposits made and answer the following questions:

1. Which checks are currently outstand-ing? Here’s a hint: the last check Anna wrote was check number 210. Here’s another hint: Check 20� came in with the June statement, so it is not outstanding.

2. How did the bank arrive at the July balance of $198�.�0?

�. What is the total dollar amount of the checks outstanding?

4. What is the correct balance of Anna’s account at the end of July? Hint: $1,98�.�0 is not the correct answer.




Let’s take a look at the correct answers:

1. There are only two outstanding checks: number 208 and number 210. If you examine the July state-ment, it may look as if check 20� is also outstanding, but that check came in on the June statement.

2. The bank arrived at the July balance of $198�.�0 by adding all deposits made to the ending June balance and deducting all checks that cleared the bank, ATM withdrawals and fees assessed during the month of July.

�. The total amount of checks out-standing is $2�� – the sum of $100 and $1��.

4. To arrive at the corrected balance of the account, use the bank’s bal-ance of $198�.�0 and subtract the total of the two outstanding checks - $2��.00. The final balance is $198�.�0 minus $2��, or $1�09.�0. This is the amount that Anna has left to spend in the account.


ATM cards are a convenience when it comes to getting quick cash. Here are a few guidelines that will make your use of ATM machines a safe experience.

Be sure to protect your pin number. Keep the records for the card in a safe place and don’t ever share your card, or the PIN number, with anyone else.

Remember that ATM transactions come directly from your checking account. Keep all ATM receipts and record the amounts in your checkbook register if possible.

Use the ATM machine during regular daylight hours; don’t use ATM machines in unfamiliar areas, or at times when your personal safety could be jeopar-dized.

• Protect your PIN number

• Keep all ATM receipts; record purchases and cash withdrawals in check register

• Be aware of safety and security when using the ATM machine

• Contact authorities in case of loss or theft of purse or wallet

• Be economical with ATM fees

ATM Cards

If you lose your card through negli-gence or theft, notify the authorities immediately. It is an easy matter to have the card number canceled, if necessary.

Be aware that some ATM machines will charge you for using the machine; consider the cost of your transaction in percentage terms. A $1.�0 charge on a withdrawal of $100 is 1.�% interest; a $1.�0 charge on $10 is a 1�% rate of interest. If at all possible only use ATM machines at your own bank to avoid fees completely.


• Checking and Savings are two basic types of bank accounts

• A savings account is excellent for depositing emergency cash

• A checking account provides security, and a paper trail, when managed properly

• An ATM card provides convenient access to your cash

Summary of Your Banking Relationship

In this chapter, we have focused on the banking relationship. We have discussed the two basic types of ac-counts, checking and savings.

A savings account provides a place for you to establish a cash reserve, for use in emergency situations, or for large purchases.

A checking account provides safety for your deposits, and also creates a paper trail so that you can monitor your expenditures—however, you must monitor your account carefully to avoid overdrafts

An ATM card gives you the capability of withdrawing cash at any time.

By skillfully managing your banking relationship, you can establish a track record that provides confidence to the bank that you can manage your money--and will undoubtedly lead to bigger financial opportunities for you.


Quiz

Please take the quiz on this chapter to verify your understanding of the materi-als. You will find it in the pull out sec-tion in the back of this workbook.

Evaluation

Please fill out the short evaluation form in the pull-out section of this work-book. This helps us to evaluate the effectiveness of the materials and make improvements.

Please mail or fax your quiz, evaluation and contact information. You will find information and directions on each pull-out sheet. We will then send you a certificate for completing this course.

Thank you for completing

I hope you will take the other classes in our series. Good luck as you continue to Invest in Yourself!

Your Banking Relationship

A Division of North Seattle Community College Foundation© 2013 American Financial Solutions. All Rights Reserved

IN THIS WORKBOOK LEARN:• About the importance of a bank account

• The basic account types

• Selecting a financial institution

• Managing your accounts

your banking relationship · 2018-07-09 · for direct deposit of your paycheck. that way, on...

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